BUSINESS STRATEGY

Time allowed – 3 hours

Total marks – 100

N.B. – Questions must be answered in English. Figures in the margin indicate full marks. All workings are to be submitted.
Examiner will take account of the quality of language and of the manner in which the answers are presented.
Different parts, if any of the same questions must be answered in one place in order of sequence.
Marks

1. (a) What are the Drivers of Unethical Strategies and business behavior? 3
(b) Why should company Strategy be ethical? 3
(c) In some situations, it is preferable to find another firm to acquire or seek growth by merger with another
company. Discuss where acquisition or merger would be the most suitable strategy to adopt. 3
(d) Explain how the shareholders of a company could benefit from a Demerger. 3

2. Pride is an IT consultancy business based in Dhaka. Pride specializes in consultancy activities relating
principally to database management and IT security. Since its formation in 2014, Pride has grown
organically and has built a strong reputation within its two areas of specialization. Competition is strong
in the IT consultancy industry and Pride faces competition from a number of local and international IT
consultancy businesses operating throughout Bangladesh. Pride employs highly qualified and skilled IT
staff, whose time is charged out to clients on an hourly basis. Pride’s clients expect high quality service
delivery and many also require Pride to be available to respond 24 hours a day, 7 days a week. Pride has
been highly innovative in the last few years, with a number of its IT staff building upon their areas of
expertise and knowledge to develop new opportunities in Pride’s IT consultancy portfolio.
These new consultancy activities are in the areas of big data and cyber security. Pride’s five senior
partners hold monthly meetings in which they discuss performance. At these meetings, the five senior
partners mainly focus upon comparing actual performance versus budgeted performance for the
revenues and profit generated by Pride. The partners also review the latest market share and client
feedback information, based upon client surveys carried out each month. Pride’s IT staff are paid an
annual salary and individual bonuses are also paid, based upon a team manager's assessment of each
individual’s performance and achievement of targets throughout the year. It is rare that bonuses are not
paid and most IT staff are not consulted directly by their team manager regarding their targets. The five
senior partners receive a fixed salary and a bonus based upon the overall annual business profits.
At a recent monthly meeting, the five senior partners discussed performance targets for Pride for
2018. One of the founding partners, who had recently returned from a conference attended by a range
of consultancy businesses, expressed concern that Pride’s existing performance information is not
focused on the key activities of Pride’s business. He believes that as a service business, Pride must
focus upon a wider range of dimensions beyond just market share and financial performance.
Requirements:
(a) Explain FOUR characteristics of a service business, using Pride to illustrate your answer 8
(b) Evaluate the current process used by the five senior partners when reviewing Pride's performance
and the current process used to set targets. You should use Fitzgerald and Moon's 'Building Block
Model' to assist in structuring your answer. 9
(c) Recommend, with reasons, TWO suitable performance measures which could be used to assist
Pride in measuring those areas of its business in which it must succeed, in order to remain
competitive. 6

3. PHC is an independent charitable clinic working for better public health in a major city. It carries out
research, policy analysis and development activities, working on its own, in partnerships, and through
government funding. It is a major resource to people working in health and social care, as well as
providing health care and advice in its local community through its own dedicated clinic. The clinic
has been chosen to be the subject of a national scheme to measure clinic performance. Amongst a

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 number of factors, the ‘quality of care provided’ has been included as an aspect of the service to be
measured. Three features of ‘quality of care provided’ have been listed:
(i) Clinic’s adherence to appointment times
(ii) Patients’ ability to contact the clinic and make an appointment without difficulty
(iii) The provision of a comprehensive patient health monitoring programme, made up of various
stages that need to be completed.
Operating costs for the clinic are currently running at BDT 7 Mn per annum. PHC has just learned
that it is facing large cuts in the amount of money that it receives from the government as a subsidy
to its service, which will threaten the quality of patient care and ultimately its entire operations. It has
nevertheless set itself the task of improving its service, and raising funds to continue its work, through
the creation of a comprehensive online facility which will become fully operational in 2020. This will
include online advice on minor medical matters and online booking of all clinic appointments,
including monitoring and follow up services. The PHC trustees estimate the start-up costs of such a
service to be BDT 2mn and annual operating expenses to be BDT 500,000.
A market research report was commissioned to establish the viability of the project, and the report’s
key findings identified the ‘user friendliness’ of the website as a critical factor in the success of the
service. The market research company then decided to conduct an online survey of 2000 internet
users in PHC’s local area to establish the likely take-up of the service.
A summary of key findings is given below.
Key results from the online survey and market research report.
 60% of those surveyed believed that such a service would be useful.
 50% said that they would be prepared to pay an annual membership fee of between BDT 100 and
BDT 300.
 Up to 200,000 individual users, and 2,000 organizational members, are forecast for the site by 2020.
 Up to 500 organizational members are forecast to be ‘income generating’ advertisers on the site by
2020 – each expected to generate a minimum to BDT 500,000 each year from that presence, of
which 10% will be donated to PHC.
 Internet usage in the local area is set to double over the next four years.
 The market research company indicated that their forecasts of net cash flows could vary between
plus minus 30%.
Two funding models have been developed for the clinic following the market research. First, the
company could allow advertising access to the website to local organizations in return for a flat fee
of BDT 500, plus a 10% commission on any income generate from goods and services sold directly
via the site. Individuals who wish to see the site could do so for free.
Alternatively, memberships could be offered to local organizations, and any individuals who want to
use the site for their own healthcare requirements. Membership would cost BDT 100 for individual
members and BDT 300 for organizations, but there would be no advertising access and hence no
commission revenue.
Requirements:
(a) Provide a financial forecast based upon the funding models identified, showing:
(i) Net annual cash flow. 5
(ii) How the forecasts might vary with the possible errors in the forecast data identified by the
market research company. 3
You should explicitly state any assumptions you need to make.
(b) Provide clear recommendations concerning the project, from both a financial and non-financial
perspective. Consider issues of suitability, feasibility and acceptability in your answer and give
clear justification for the decision reached. 7
(c) Suggest a set of performance measures which can be used by PHC to identify the level of
achievement of each of the three ‘quality of care provided’ features listed. 5
(d) The absence of the profit measure in non-profit seeking organizations causes problems for the
measurement of their performance. With reference to PHC, briefly explain why this is the case. 5
4. M/s. ABC Ltd.’s business is organized as three divisions and Head Office. The divisions are based
on market groupings, which are Retail, Wholesale and Government. The divisions do not trade with
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 each other. The main method of control of the divisions has been the requirement to earn a return on
investment (ROI) of 15% per annum. The definition of return and capital employed is provided by
Head Office, as is the criterion rate of 15%. The recent experience of M/s. ABC Ltd. is that the group
as a whole has been able to earn 15% ROI but there have been wide variations between the results
obtained by different divisions.
This infringes upon another group policy that forbids cross-subsidization i.e., each and every division
must earn the criterion ROI.
M/s. ABC Ltd., is now considering divestment strategies and this could include the closure of one or
more of its divisions.
The Head Office is aware that the Boston Product Market Portfolio Matrix (BPMPM) is widely used
within the divisions in the formulation and review of marketing strategies. As it is so widely known
within the group and is generally regarded by the divisions as being useful, the Head Office is
considering employing this approach to assist in the divestment decision.
Requirements:
(a) Evaluate the use by M/s. ABC Ltd., of the ROI and its policy that forbids cross-subsidization. 9
(b) Describe the extent to which the BPMPM could be applied by M/s. ABC Ltd., in its divestment
decision. Evaluate the appropriateness of the use of BPMPM for this purpose. 9

5. Companies have an obligation to provide information to their stakeholders. The financial information
provided tends to be of a historical nature. It has been argued that shareholders in particular should
be entitled to receive forward-looking information. Some companies wishing to communicate
selectively with a subgroup of shareholders are often prevented from doing so, as all shareholders
should receive the same financial information.
Requirements:
(a) Explain why a company may wish to disclose forward looking information to its stakeholders
and in particular to its shareholders. 6
(b) Explain how they might convey this information to the shareholders. 5

6. Consumers Ltd is a large manufacturing firm, dealing in several product lines. Currently, there are
plans to explore other foreign markets for its products. 40 staff are tasked with matching goods
received notes with orders and then with invoices. It has been observed that an appreciable length of
time is spent trying to find out why some of the set of three documents do not agree.
While some managers recommend the computerization of the existing process to facilitate matching,
others propose the use of Business Process Re-engineering.
Requirements:
(a) State FIVE characteristics of a re-engineered business process. 5
(b) Explain SIX examples of how technology can change the way business activities are conducted,
with reference to the Consumers Ltd scenario where appropriate. 6

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